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Conflicts in the Middle East tend to be a good thing for oil prices but with relations between the region's two superpowers, Saudi Arabia and Iran, at historic lows after the execution of Sheikh Nimr al-Nimr and the ongoing war in Yemen, the price of crude continues to slide to its lowest level for a decade, at $33 per barrel.
The Iran-Saudi spat comes as Libya, Iraq and Syria – all oil producers – have significantly reduced capacity in the face of civil war and rampant insurgencies. The chaos embroiling so much of the Middle East and the prospect of renewed tensions between Tehran and Riyadh should be pushing prices higher.
But the opposite has happened. Oil prices have fallen from a high of $140 (£96, €129) per barrel in the middle of 2014 to just above $30 today. Every time that the price falls, analysts expect it to bottom out – and then it falls lower. The knock on effect has hit markets from Shanghai to New York and the prospect of more market turmoil looms.
Saudi Arabia is feeling the pinch. Oil exports make up some 73% of the country's GDP and its oil income fell 20% in 2015, leading to an unusually public announcement that Riyadh was to slash spending in 2016. Riyadh spent $80bn of its reserves in 2015 propping up its economy in the face of falling oil prices and now runs a deficit close to 20% of GDP.
What is baffling some economists is if anyone could stop or at least minimise the oil price crash, it is Riyadh. Saudi Arabia is the second biggest global oil producer and when it turns off the taps, the oil market responds. In 1973, Saudi Arabia and other Arab states instituted an oil embargo in reaction to Israel's war with Egypt and Syria, leading to a stock market crash in the US and a doubling in the price of crude on global markets.
In the decades since, Saudi Arabia's massive capacity has always allowed it to either slow or speed up the rate of growth simply by upping or reducing its own production. There is precedent in the last decade: in 2009, Riyadh agreed to raise production as oil prices spiked in the aftermath of the economic downturn after the then US president George W Bush went cap in hand to the then Saudi king, Abdullah bin Abdulaziz.
But as oil prices collapse at the start of 2016, Saudi has done nothing to halt it – despite the damage to its own economy. The question is, why?
US shale production is certainly a factor. If Saudi cuts production and allows the price of oil to rise, it would be putting money into the pockets of US producers, allowing more to be invested in shale production and, in the long term, less demand from America for Saudi oil. In this vicious circle, Riyadh could be playing the long game.
Iran is another. The ending of sanctions by the US as part of the P5 + 1 deal means Iran will soon be able to sell oil more openly on the open market. If oil prices rise, Tehran will benefit, presenting Saudi Arabia with the worrying prospect of Iran being able to pump more money into its proxies in Syria, Lebanon and Yemen – all countries in which Saudi backs rival groups and vies for control.
There is also the consideration that while Saudi may decide to turn off the taps, other OPEC members may not. Iraq, the UAE, Kuwait, Iran and Russia may like to see oil prices rise in an ideal world, they have more to lose from halting production than Saudi – with its huge reserves and massive production. Riyadh could feasibly take a short-term hit for a long-term gain but other nations with less stable governments and smaller reserves cannot.
Some analysts go further, suggesting that with the rise in US shale, it is American firms that have taken on Saudi's previous role as a swing producer. The break-even price for US shale is around $20 so even with oil at $33 per barrel, American firms are still making a profit, said Jason Tuvey, at research firm Capital Economics.
Riyadh could also be playing the long game domestically. Mohammed bin Salman, the 30-year-old deputy crown prince, told the New York Times in a rare interview at the end of 2015 that he was seeking to reduce Saudi Arabia's reliance on oil and impose a more responsible economic policy. Government spending fell by 14.5% in 2015, a significant amount given Riyadh's reputation for lavish infrastructure developments and mega-projects.
Lastly, despite the doomsayers predicting the imminent collapse of the Saudi state as oil prices fall, Saudi-watchers point out that while Riyadh has slashed its spending it has massive reserves: standing at $635.5bn at the end of November down from $745.9bn in mid-2014. At this rate of depletion, research firm Capital Economics claimed in a note published on 7 January that reserves would last another seven years.
John Sfakianakis, a veteran Saudi watcher and analyst, also pointed out in November 2015 that while there is a squeeze on Saudi Arabia's budget in 2016, it is no new phenomenon for Riyadh. The oil price crash in 1980s and 1990s came alongside the Iran-Iraq War, civil wars in Lebanon and Algeria and the first Gulf War and yet Saudi Arabia was able to maintain its stability. The country's debt stood at 100% of GDP in 1999 – it is just 6% today.
So while Saudi Arabia could step in and halt the global crash in oil prices, it is unlikely to do so. Both the long-term plan for its own economy and its forays into the geopolitical mess that is the Middle East at present mean cheap oil rather than a rise in Iranian power and US shale is the lesser of two evils for the kingdom.